FTC Takes Action to Stop Credit Karma From Tricking Consumers With Allegedly False "Pre-Approved" Credit Offers

Breaking Down the Allegations: 1. Misrepresentation of Pre-Approval: The FTC's complaint states that Credit Karma falsely claimed that consumers were "pre-approved" for credit offers, creating a sense of certainty and enticing them to apply. However, nearly one-third of consumers who applied were denied, exposing the false nature of these claims. Credit Karma often buried disclaimers or used misleading statements, such as "90% odds of approval," to downplay the possibility of denial. 2. Consumer Deception and Harm: Credit Karma's deceptive claims not only misled consumers but also caused them to waste valuable time applying for credit card offers they were unlikely to be approved for. Additionally, third-party financial companies made hard inquiries on consumers' credit reports during the application process, potentially damaging their credit scores and limiting their access to other financial products in the future. The FTC's Enforcement Action: 1. Prohibition of Deceptive Claims: Under the FTC's order, Credit Karma is prohibited from deceiving consumers about their approval or pre-approval status for credit offers. The company must cease making false claims regarding the likelihood of approval. 2. $3 Million in Consumer Redress: Credit Karma is required to pay $3 million to the FTC, which will be distributed to consumers who were harmed by the company's deceptive practices. This restitution aims to compensate consumers for the time and effort wasted on applying for credit cards they were not genuinely pre-approved for. 3. Preservation of Records: To prevent the further use of deceptive dark patterns, Credit Karma must preserve records of any market, behavioral, or psychological research related to their advertising and user experience. This includes A/B testing, surveys, and usability testing.